- Manchester Index™ confirms the recovery continues in the UK and in the Greater Manchester economy into the second quarter of the year.
- Confidence in turnover and profits continue at rates reminiscent of the pre-recession peaks
- Chamber forecasts inflation will hover at or below the 2% target, jobs growth will continue and unemployment will fall
Results from Greater Manchester Chamber of Commerce’s Quarterly Economic Survey confirm that the recovery has continued into the second quarter of 2014.
The Manchester Index™, which is derived from the QES results and is an early indicator of trends in both the Manchester and UK economy, adjusted from 35.1 in the first quarter to 33.6 in the second quarter.
The Index remains above the pre-recession average for the period 2005 - 2007. The data within the survey is in line with the Chamber’s projections for growth in the UK economy this year of 3%, moderating slightly to 2.8% in 2015.
The outlook for home orders and deliveries slowed slightly in both the service sector and the manufacturing sector. Despite the strength of sterling, the outlook for manufacturing exports improved, although service sector prospects dipped slightly.
The good news on employment continued albeit at a slower rate. The number of firms recruiting in the manufacturing sector fell slightly as did intentions to recruit over the short term. In the service sector, the outlook remained more positive with the number of firms expecting to recruit increasing to an all time high.
The QES employment tracker ® moved lower with the tracker index slowing to 47.8 from 51.2 in the prior quarter. This is still higher than the average 46.5 recorded in the benchmark pre-recession period 2005 - 2007.
The QES inflation tracker ® moved much lower in the quarter. The tracker index fell to 15.0 from 24.1. The latest ONS data for May confirmed inflation CPI basis fell to 1.5% as manufacturing output prices held at 0.5%. Manufacturing input costs fell in the second quarter as world commodity prices, oil, metals, parts and manufactures remain subdued, assisted by sterling appreciation. For the moment, businesses continue to be unconcerned about the prospects for inflation and prices.
In the service sector, capacity utilisation fell but investment intentions remained strong and investment in training remained a priority. In the manufacturing sector, capacity levels fell, impacting slightly on investment and training intentions.
Commenting on the Manchester Index™, John Ashcroft (pictured), Chief Economist at Greater Manchester Chamber of Commerce, said:
“We monitor prices, pay, raw materials, inflation, competition, business rates and taxation on a regular basis and, looking ahead, there are no significant problems apparent at this stage in the recovery.
“Exchange rates are becoming more of a concern to both manufacturing and service sector businesses, but for the moment, exports prospects and order books in the manufacturing sector appear unaffected although the service sector outlook dipped from the first quarter high.
“As for interest rates, manufacturers are less concerned about the prospects for interest rates rises compared to the service sector. Business rates appear to be of moderate concern to both sectors.”
In the USA, the outlook for interest rates remains unchanged from the quarter one survey. Tapering will be completed by October and rate rises in the USA may follow within six months, possibly by April 2015.
In the UK, following the last survey, the Chamber said that the Bank of England MPC had given clear forward guidance with base rates unlikely to increase until the first half of 2015. This month, however, the Governor stated that interest rates may rise “sooner than markets expect”.
The strength of domestic demand, reflected in retail sales, car sales and the housing market may push the MPC into early action. This is despite the strength of sterling and the low inflation outlook over the short term.
John Ashcroft continued: “The jobs market continues to improve in the UK, however, the Chamber believes the labour market may tighten significantly over the next six months placing greater pressure on labour rates and payroll. ‘Spare capacity’ may be rapidly exhausted if growth continues at current trends, hence the Bank of England concern.
“We also believe that UK interest rates may rise in the final quarter of the year and we advise businesses to plan accordingly. The MPC will be reluctant to act ahead of the Fed and the strength of sterling may stay the hand of the MPC into 2015, but for the moment the risk of a rate rise this year has increased significantly.”